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A term that has become almost overused recently is unintended consequences. What is it, and how does it play into a discussion of engine oils? That involves government policy and the direction that policy is taking our industry.

First, what is it? Believe it or not, it is a law of economics. According to The Concise Encyclopedia of Economics, The law of unintended consequences, often cited but rarely defined, is that actions of people – and especially of government – always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it.

Adam Smith and John Locke both recognized the concept. Smith referred to it as the invisible hand. Locke saw it as the unanticipated, negative impact of legislation, which is how it is most often viewed today. Frederic Bastiat, a 19th century French economic journalist, felt the difference between a good and bad economist was that the good economist anticipated the unseen effects of any action, while the bad economist only looked at the visible effects.

The most complete analysis of the concept was done in the mid-1930s by Robert Morton. He identified five sources of unanticipated consequences:

1) Ignorance. Pretty obvious what this means.

2) Error. Also obvious.

3) Imperious immediacy of interest. This means that someone wants the intended consequence so badly that they ignore any unintended effects. It could be called willful ignorance. The U.S. Food and Drug Administrations insistence, beginning in 1962, on testing not only to prove efficacy but also safety causes very long delays in introduction of beneficial drugs and probably results in more suffering and death.

4) Basic values. This refers to the impact of a value system on society. An example is the Protestant work ethic which urges hard work and frugality. However, the application of the work ethic leads to its own decline, because it results in the accumulation of wealth and possessions.

5) Self-defeating prediction. A great example of this comes from the middle of the 20th century when dire warnings were made that population growth would lead to global starvation. In response, scientific breakthroughs in agricultural productivity have made it very unlikely that prophecy of mass starvation will ever happen.

By this time youre saying, Hes gone around the bend! What does this have to do with oil or automobiles or whatever? Glad you asked. There are a number of issues related to our industry which have any number of unintended consequences. The first that comes to mind is ethanol in gasoline.

The 2007 Energy Bill requires refiners to mix 36,000,000,000 (thats 36 billion!) gallons a year of ethanol into the gasoline supply by the year 2022. Remember that in 2007 the economy was booming, the Democrats had gained a majority in both houses of Congress, emissions regulations were being tightened (again), refinery capacity was strained and crude prices were rising. Over the years our legislators had taken hard positions on domestic oil production (no) and alternative energy (yes).

One way to get more energy without further dependence on foreign crude is to use domestically grown agricultural products, especially corn, to produce ethanol. It is well known that ethanol at 10 percent of gasoline was compatible with current fuel systems in vehicles. In addition, 10 percent ethanol could replace the gasoline additive Methyl-t-Butyl Ether (MTBE), used to reduce carbon monoxide (CO) emissions. MTBE had been implicated in contaminated groundwater problems and was outlawed for gasoline use. This seemed to be a perfect fit.

The first unintended consequence of the ethanol requirement is that water is becoming quite scarce in many parts of the country. Traditionally drier areas (eastern Colorado, for instance) are seeing significant drops in water resources due to increased agricultural activity related to growing corn, the current source for most of the ethanol being produced. (See Newsweeks February 21 online edition for more on this.)

Next came 2008, which really threw a monkey wrench into the works. The economy went south and with it fuel consumption – down nearly 7 percent, with another 2.2 percent drop expected in 2009. Meanwhile, the law requires that in 2010, 13 billion gallons of ethanol must be used in fuel. However, current regulations restrict ethanol to 10 percent maximum in gasoline. The ethanol industry is trying to get the limit raised to 15 or even 20 percent. The goal here is to make sure ethanol producers wont be stuck with excess product for which there will be no home.

The problem is compounded by the fact that the vehicle fleet in the United States is getting older. According to R.L. Polk & Co.s annual vehicle population report for 2008, the fleet has about 240 million cars and trucks, with a median age for passenger cars at 9.4 years. Most of these are not designed for fuels containing more than 10 percent ethanol. Since the median refers to the value that is in the middle of the range, half of the vehicles are less than 9.4 years old and half are older than 9.4 years. Thats a lot of old cars and trucks!

It appears that no one seems very concerned that only a small fraction of the cars and trucks on the road can really tolerate much greater than 10 percent ethanol, to say nothing of outboards, motorcycles, snowmobiles and gasoline-powered equipment such as chainsaws. Potential problems when increasing ethanol to 15 or 20 percent are seal compatibility, fuel-line interactions and emission system malfunctions, to name just three. To be sure, newer vehicles, especially the so-called flex-fuel models, are designed to handle up to 85 percent ethanol (E85) but they represent only a small portion of the vehicles on the road (7 percent, says R.L. Polk).

To mitigate this problem, the state of Maine is considering legislation to have one ethanol-free grade of gasoline. This is primarily for boats, winter recreational vehicles (snowmobiles), small-engine applications, and older autos. It would be a premium grade so that all applications would be covered. Maine is working with major gasoline suppliers to see how this would work in practice.

The National Marine Manufacturers Association (NMMA) has requested that the U.S. Environmental Protection Agency test the applicability of ethanol-containing fuels in small engines. Typically, boats and boat engines are older – models from the 1970s and 80s are common – and many sit with their fuel tanks partially or completely full for months at a time. Moisture causes the ethanol to drop out, which can result in a buildup of ethanol. One report says that 30 percent ethanol in the tank is not uncommon. Tests run last fall at Oak Ridge National Laboratory in Tennessee showed that ethanol raised internal engine temperatures in several small-engine types, some significantly. In some string trimmers, ethanol caused the engine to idle faster and engage into gear. Significantly, NMMAs TC-W3 specification for marine engine oils has no test which directly measures the impact of ethanol-containing fuels. Perhaps TC-W3 does provide some protection; otherwise there would more customer complaints.

The silver lining insofar as automotive engine oils are concerned is that ILSAC, the auto industrys lubricants committee, has incorporated into its proposed GF-5 passenger car engine oil spec a bench test for fuel emulsion stability of engine oils with E85 and water. This test would assure that the oil holds up in the presence of blowby from an engine fueled with E85.

Of course, E85 or flex-fuel engines have been in the marketplace for several years, apparently with no major catastrophe. That may be because there are so few flex-fuel engines actually running on E85, due to the scarcity of E85 fueling locations. Depending on who you believe, there are either 640 or 1,800 E85 fueling locations, out of a total of about 185,000 nationwide. Reportedly, almost 70 percent of the owners of flex-fuel vehicles currently on U.S. roads dont even know that their vehicle is able to run on E85!

There is also debate over the relative merits of E85. While oxygenates do reduce CO (and some say CO2) emissions, they increase NOX as well as introduce aldehydes into the exhaust. Then there is the question of fuel economy. Consumer Reports ran a fuel economy study of E85 vs. all-hydrocarbon gasoline. E85 produced 27 percent lower fuel economy than did normal gasoline. In addition, says David Pimentel of Cornell University, it requires 70 percent more energy to produce corn ethanol than the energy it delivers. That doesnt sound like a very good energy deal but maybe we can all get carbon credits for it!

Now comes the latest in this string of fuel economy, alternate energy and assorted other issues: Congress is on the verge of passing legislation raising the minimum Corporate Average Fuel Economy floor to 30.2 mpg for 2011 models. ILSAC GF-5 engine oil includes higher fuel economy targets, but will they be enough? Will we have to immediately start GF-6, or will SAE 0W-20 become the automakers primary viscosity recommendation? If that is the case, do we have enough API Group II+, Group III and Group IV base stocks to meet the expected requirements? How will the viscosity mix affect overall base stock production? What impact will all of this have on the marketing of engine oils?

For another example of unintended consequences, look at the introduction of diesel particulate traps on heavy-duty engines. When the API CJ-4 category was under development, there was a lot of concern about sulfur, ash and phosphorus content of the engine oil. No one knew what to expect, so decisions were taken as to what those levels might need to be. Ash content was set at 1 percent max, phosphorus at 0.12 percent max and sulfur at 0.4 percent max.

The problem was these levels were not in tune with then-current CI-4 Plus oils. In addition, there was a clear concern that engines already in the market would not be properly protected with CJ-4. However, emissions drove the process and the new category was introduced with a lot of additional cost to develop new tests.

After about two years in the marketplace, many fleet owners found that they could do just fine with CI-4 Plus and more frequent particulate trap servicing. In fact, some fleets found that there was no change in operations. This prompts the question: Why did we develop CJ-4 in the first place?

Both of these examples fall into Mortons third category of consequences. The ethanol legislation was driven by certain organizations and legislators desire for emissions reductions, but without due consideration for the impact of the legislation on business. Thomas Sowell, senior fellow at the Hoover Institute, in his book Applied Economics: Thinking Beyond Stage One, notes that many problems occur because we dont think beyond the first impact of what we do. If we go to the second or third stage of change due to economic decisions, our choices would often be quite different.

Theres no doubt in my mind that the decisions made by government are mainly driven by an honest desire to do the right thing. Of course, reelection is considered by most elected public servants to be the right thing. I just wish that more thought could be given to the consequences of actions, so that only those which are intended actually occur, and the unintended consequences are driven out of the picture.

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